India-UK DTAA: the IT-services and royalties playbook

The India-UK treaty (1993, protocols 2013) is the second most-litigated treaty in Indian courts after the US treaty, largely because of the FTS and royalty article and the cross-border IT services industry. The treaty's structure for these payments determines whether large back-office and software contracts attract Indian withholding. The 2013 protocol added an LOB-style article and exchange-of-information enhancements aligned with OECD standards.

Article 13 caps royalties and fees for technical services at 15% (10% for use of industrial, commercial or scientific equipment). The make-available test mirrors the Singapore treaty: a service is taxable as FTS only if it transfers technical knowledge that allows the recipient to apply the technology independently. Routine software customisation, maintenance and BPO services often fall outside FTS under this test. Indian courts in Linklaters, De Beers and several Bombay rulings have built a body of case law on what 'make available' means; cite these in your contract and invoice descriptions.

Article 11 caps dividends at 15% (10% if the beneficial owner is a company holding at least 10% of voting power). Article 12 caps interest at 15% (10% for bank-paid interest), with a 0% rate for government-related lending. Capital gains on shares are taxed at source under Article 14 - India can tax gains on Indian shares regardless of UK residency, so the treaty does not give a capital-gains exemption (unlike the old Mauritius/Singapore regime). Most founders use the treaty for operating-income reduction, not exit-tax planning.

Article 5 includes the standard fixed-place PE, agency PE and a service PE that catches IT consultants on long client engagements: presence in the source state for more than 90 days in any 12-month period (counted at the enterprise level) triggers PE. Indian IT companies sending architects or PMs to UK client sites need to track days carefully. Once a PE is triggered, profits attributable to the PE are taxable in the UK at the corporation tax rate (currently 25% for profits above GBP 250,000).

Article 24 gives credit for tax paid in the other state. India administers this through Section 90 and Rule 128 (Form 67 must be filed on time). UK gives unilateral credit under Section 18 of TIOPA 2010 supplemented by the treaty. Watch the timing: UK tax years (6 April to 5 April) and Indian financial years (1 April to 31 March) do not align. Founders frequently miss credit because they apply tax paid in one Indian FY against income reported in a different UK tax year. Document the period alignment in a working note before filing.

Are software-as-a-service payments to a UK vendor royalties under the treaty?
Not usually. Pure SaaS access to a standardised platform is treated as business profits under Article 7, not royalties, in most rulings. The position changes if the contract grants source-code access or rights to modify, which would be royalty.

What is the make-available test?
A service qualifies as FTS only if it makes available technical knowledge that enables the recipient to apply the technology independently after the service ends. Pure execution services that do not transfer know-how typically fall outside FTS.

Does the treaty cap UK withholding on Indian dividends?
Yes, at 10% for corporate recipients with 10% voting power, otherwise 15%. UK domestically does not withhold on dividends, so the practical use is when Indian companies pay dividends to UK shareholders.

How is residency tied for individuals?
Article 4 tie-breaker uses permanent home, then centre of vital interests, then habitual abode, then citizenship. For Indian founders splitting time, the centre-of-vital-interests test usually decides residency and is fact-intensive.

Does the UK statutory residence test override the treaty?
No. The SRT determines UK residency under domestic law; if both countries treat you as resident, the treaty tie-breaker decides which has primary taxing rights and the other gives credit.

Is the LOB clause in the India-UK treaty as strict as the Singapore one?
No. The 2013 protocol added an anti-abuse rule and exchange-of-information enhancements but did not impose a quantitative expenditure test. PPT under the MLI applies on top from 2019.